Certified Government Financial Manager (CGFM) Practice Exam 2025 - Free CGFM Practice Questions and Study Guide

In inventory management, risks encompass a variety of factors that can adversely affect the efficiency and financial health of an organization. The correct response indicates that all given risks are relevant to inventory management.

Not having enough inventory can lead to stockouts, where a business cannot meet customer demand, resulting in lost sales, diminished customer satisfaction, and potential damage to brand reputation. It also disrupts production processes if essential materials are missing.

On the other hand, having excessive inventory poses financial risks as well. Overstocks can result in increased holding costs, such as storage, insurance, and potential obsolescence of goods. Items may have to be discounted to move excess stock, reducing overall profitability.

Additionally, losses due to various factors can arise in the inventory management process, including theft, damage, spoilage, or inaccuracies in record-keeping. These losses add another layer of risk, impacting the overall operational efficiency and financial performance of the organization.

Thus, acknowledging that all these options reflect legitimate risks highlights the complexity of inventory management and the necessity for businesses to implement robust strategies to mitigate these diverse threats.